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  1. 1. PEPPERDINE UNIVERSITY THE GEORGE L. GRAZIADIO SCHOOL OF BUSINESS AND MANAGEMENT KAREN SCHNIETZ MBAM 619.14 BUSINESS STRATEGY SPRING 2007 THURSDAYS, 8 a.m. – Noon 1
  2. 2. BUSINESS STRATEGY MBAM 619.14 SPRING 2007 Day/Class time: Thursdays, 8 am to noon. Location: Malibu Professor’s Name: Karen Schnietz (pronounced SchnEEtz – but please call me Karen) Office address: 2929 Townsgate Rd., Suite 180, Westlake Village, CA 91361 Office Phone #: 805-497-3054 E-mail address: karen.schnietz@pepperdine.edu, kschnietz@sbcglobal.net Fax #: 805-497-8786 Office Hours: Thursdays after class or by appointment Course Description This course focuses on formulating and implementing the major strategic goals of a firm under conditions of changing industry competition, firm resources, technology, international competition, and social and political conditions. The course places students in the position of top executives, responsible for assessing firms’ internal and external environments for competitive threats and opportunities, and for formulating and implementing the main strategic direction of the firm. Students will apply numerous strategy models and frameworks, in addition to many of the skills acquired in prior courses, to choose and defend a strategic action from alternative strategies. The course relies heavily on experiential teaching methods – such as cases, games and a simulation – to replicate as much as possible decision-making under conditions of incomplete information, uncertainty and time constraint. In addition to the strategic management of the private competitive environment of business, this course stresses the international, public policy and ethical environments of business, which are increasingly impacting U.S. firms and industries. Finally, the instructor will not have done her job if she and the students have not both learned a great deal and thoroughly enjoyed doing so. Course Objectives At the end of this class, students should be able to: 1. Think strategically (globally) about a firm, as well as functionally (narrowly); 2. Conduct an Industry & Competitor Analysis; 3. Define a firm’s main capabilities, competencies and competitive advantages; 4. Determine the main strengths and weaknesses of various strategic actions such as diversification, internationalization, technological first-mover, and joint-venturing; 5. Understand many of the routinely-encountered difficulties in strategy implementation and have methods at hand to address those difficulties; 6. Appreciate the impact of the non-market environment of business on firms, such as the strategic constraints and opportunities presented by social and political developments; 7. Be sensitive to the moral and ethical dimensions of strategic decisions; 8. Be able to assess why one firm in an industry outperforms another firm in the same industry. Course Materials There is no text book for this course. I have not found one sufficiently current, interesting and suited to my teaching emphases and style to be worth the purchase price. Instead, there is a reading packet of cases and articles, available electronically or in hard-copy, and the simulation manual, available both electronically and in hard copy. 2
  3. 3. 1. Simulation Manual (Richard V. Cotter and David J. Fritzsche, The Business Policy Game, Player’s Manual, Fifth Edition, Third Printing) can be (1) purchased at the Malibu and West LA Center bookstores, or (2) downloaded for free (although this is a non-printable only version of the manual) at the simulation author’s website: www.eskimo.com/~bpg. Go into the “Player’s Section”; User ID is “player” and Password is “swb30oss.” It is probably not necessary for every person to buy a manual -- 2-3 hard copies per team will probably suffice. Please note that my other readings are not available at the bookstore; the readers produced by our bookstore cost more than at www.study.net. 2. Simulation License. Your team will need to purchase a license to play the simulation (they cost $100 per team). I will provide further instructions on how to do this during the simulation overview in class #7. 3. Course readings can be obtained in two ways, each of which involves trading off cost and convenience: Alternative Pros Cons No. 1 - Compile business * This is the least expensive option. * There is some hassle press readings and Notes The cases and miscellaneous involved in this option, since from Blackboard and articles can be accessed the readings will be in two purchase cases and readings electronically at study.net for places: study.net and not available in Pepperdine approximately $35 (though they Pepperdine library databases. databases at www.study.net were still seeking copyright You’ll need to go to the (on study.net, choose the authorization for a few of the clickable links in Blackboard “Cases & misc. articles” articles, so this cost may change for the business press readings option for the course). slightly); a paper copy of these and my Notes, of which there readings costs an additional $20 are many, and obtain the cases plus shipping (on study.net, choose and miscellaneous readings not the “Cases & misc. articles” option in Pepperdine library databases for the course). from www.study.net. No. 2 - Purchase electronic * This is the most convenient * This is most expensive access or a paper copy of all option – all the course readings will option. Electronic access to all course readings in one be in order and available at the readings costs location at www.study.net www.study.net (on study.net choose approximately $50; a paper (on study.net, choose the “All the “All Readings” option for the copy of the reader costs an readings” option for the course). additional $30 plus shipping. course). Grading Grades are determined on a 100-point basis. Each requirement must be completed to receive a passing course grade: Points Participation 15 Individual Memo I 5 Team Industry & Competitor Analysis 25 Team Simulation (Strategic Plan 15, Team Standing 5, Debrief 5) 25 Final Exam 30 TOTAL 100 3
  4. 4. Whenever feasible, I blind grade assignments (individual memo & final). I do this primarily for my comfort: if I blind grade, then I know I have evaluated assignments solely on the basis of their intellectual merit. On your memos and final exam, please do not put your name anywhere on the exam; instead, identify yourself with the last 4-digits of your home telephone number. Team assignments are impossible to blind grade, unfortunately, because I provide comments on drafts of those assignments, so I will know which team wrote which paper by the time I receive the final paper. Attendance, Preparation, and Participation Preparation. The readings for each class are accompanied by a series of reading questions designed to focus your attention on the key concepts. These questions also provide questions for the quizzes and many of the starting points for class discussion. I empathize with the many demands on your time and thus I try to assign a manageable (modest) amount of only the most important reading (which should take approximately 2-4 hours to complete for the average class session when no written assignment is due). The activities and discussions we’ll have in class assume a high level of preparation and thus take off from the readings – they generally do not summarize readings. Instead, I will use readings as a springboard to delve more deeply into a topic. I expect that approximately half, or a little less, of the time you spend outside of class on work for this course will come from doing the readings, and the other half will come in applying course insights to the team and individual projects. Attendance. I know the multiple demands on your lives will occasionally intrude on your ability to attend class, but more than 1-2 absences will materially affect your participation score. If you know in advance that you will be absent, I’d appreciate your letting me know. Participation. This class will be highly interactive. I interpret class participation in the broad sense of positive engagement with the course. I regard comments that are relevant to the course but made outside of class time to be evidence of positive engagement with the course (and one way for students fearful of public speaking to participate in a less threatening manner). Forms of negative engagement include engaging in private conversations (via computer or verbally) or other activities unrelated to class (such as constant web-surfing), personally attacking someone or their views during class, allowing class to be routinely disturbed by cellular phone calls, rarely coming prepared to class, and complaining about course particulars with no suggestions for alternative approaches. After the 6th or 7th class meeting, I will send you feedback on your participation to date – the score I would assign for your participation if I had to do so at the mid-way point of the semester. I do this so that there is plenty of time left in the semester for you to make adjustments, if you choose to do so. After each class meeting, I take notes on the quality of class participation (I learn names quickly), and it is from these notes that I arrive at my participation assessment. Individual Memo The individual memo will be assigned at the end of class 4 and due the following week. It will consist of a question regarding the Loewen/SCI case and video that we’ll discuss in class 4 and will provide a bridge to the issues of corporate social responsibility that will be the focus of the 5th class. The memo should be 2-3 pages long (at least 1.5 line spacing, 12 point font, reasonable margins, please do not put your name on the memo – use last 4-digits of phone number only). Further instructions will be given at the end of class 4. The memo will be worth 5 points. Team Industry and Competitor Analysis My main goals in assigning this project are twofold: for teams to gain experience working with one another prior to the simulation, and to provide an opportunity to apply the course concepts from the first half of the course to a specific industry. The assignment consists of an in-depth analysis of an industry and two firms within that industry. It involves a lot of external research, particularly since 4
  5. 5. high-quality Industry & Competitor Analyses are supported by significant data and statistics that illustrate the magnitude of forces such as entry barriers, supplier power, etc. Project guidelines are in the class e-room. I am happy to read drafts of this project and comment on the draft prior to its due date. I think as much learning goes on in responding to comments, as in writing the assignment in the first place. This also gives you exposure to my grading style and expectations. I can generally turn around comments within 24-48 hours of receiving the draft (depending on my teaching and other commitments). Please make sure to leave yourself sufficient time to be able to respond to my comments; on this project, in particular, my comments tend to be extensive and require at least a few days to fully address. In prior sections, I generally have 3/4ths of teams submit drafts. Team Selection and Peer Evaluations Teams should consist of 4 to 6 members. Five members appears to be closest to the “ideal” team size, since 4-member teams sometimes find the team assignments (particularly the simulation) are a lot of work, while 6-member teams occasionally encounter free-riding problems. However, the decision on team size is yours, as long as the size is between 4-6 members. I do not assign teams; it is your responsibility to find a team in this class. Each of the initial sessions will have team break-out tasks embedded in the class time. This will enable you to determine in advance whether you’d like to work with a particular group of people. Teams must be finalized by the end of the third class meeting. Please note that it is impossible to complete the course without a team – the simulation, for example, cannot be done by just one person (even I could not play the game by myself), and the Industry & Competitor Analysis is a large research and analytic task that would take a great deal of time if performed alone. There will be confidential Peer Evaluations of all team assignments. The main goals are to (1) deter free-riding, (2) impose costs on individuals who free-ride on other team member’s work, or (3) reward individuals who make particularly large contributions to the team. I am not interested in trivial differences in individual performance. In the vast majority of cases, my teams all rank themselves equally. The specific rating method is attached at the end of this syllabus. Simulation The strategy simulation is intended to integrate all the functional disciplines of this program. The teams from this class will compete against each other in implementing a strategic plan for a fictional company via a computer simulation. To aid team decision-making, each group will prepare a written strategic plan. Guidelines for the Simulation Plan will be passed out during the 7th week of class. We will also discuss the set-up for the 3 simulation classes at the end of the trimester in detail at this time. Please get an early start reading the sim manual, as you cannot be over-prepared for the Simulation, which I promise will be one of the most fun and richest learning experiences of this class. We will practice the simulation during class (with actual decision input and output) a few weeks prior to the simulation classes. I do this to give students a chance to become familiar with the software and the financial statements prior to the actual simulation, and to attempt to eliminate most of the “silly” mistakes that can be made, and thus allow the time during the simulation weekend to consist solely of running your firm, rather than puzzling over the simulation manual or the financial statements. I am happy to read drafts of Simulation Plan and comment on it prior to its due date. My comments on the simulation plan are generally less comprehensive than on the Industry & Competitor Analysis. Nonetheless, please allow 24-48 hours for me to return comments to you, and then sufficient time for you to address them. 5
  6. 6. During our last class session (the one immediately after the final simulation class), each group will present an informal 20-25 minute oral summary assessing the main strengths and weaknesses of their team’s performance during the simulation and the main insights gained. Guidelines for what questions the Simulation Debrief should address will be distributed at the end of the Simulation. The grade on the simulation consists of three parts: the written strategic plan (15 points), the team’s actual standing against other teams at the end of the Simulation (5 points), and the debrief presentation during the class immediately following Simulation (5 points). Final Exam The final exam will be a take-home exam covering material from the entire class. I will distribute the exam during our last class session; it will be due, via e-mail, 1 week later. It will be an open-book exam, consisting primarily of an analysis of the strategy of two firms within an industry, relying on business press articles. You should open the exam 48 hours before you plan to sit down and write up your answers, and read the questions. Then think about the exam questions and, at the end of 48 hours, sit down and write up your answers for not more than 4 hours. You may consult any sources you wish, but please do not discuss your answers with anyone else. The exam will be blind-graded, so please do not put your name anywhere on the exam. You will use the last 4-digits of your home phone number for identification instead. Interpreting Your Grades The assignments in this class will not be assigned a letter grade, but rather a point total. To aid you in interpreting these point scores, I will distribute (1) an example of a full-credit assignment, so that you can see what I considered “A”-level work, and (2) information on the score range and average for the assignment. The average score is important to know since that corresponds to a B+ in this class. The strategy group (of which I am a member) imposes on its faculty the requirement to grade on a curve, with a B+ as the average GPA. This means that the vast majority of my students (and those in the other sections of strategy at GSBM) will receive a B+ in the class, since that is the only way mathematically to fulfill the requirement of an average GPA of 3.33 (B+). In the past, the average scores on the assignments in my class have been approximately (give or take half a point) as follows: Participation 12 (out of 15); Individual Memo I 4 (out of 5); Industry & Competitor Analysis 20 (out of 25); Simulation 19 (out of 25); and Final 22 (out of 30). Remember, the average score corresponds to the equivalent of a B+. A few points higher than the average is generally an A-, while a few points lower than the average is generally a B; several points higher than the average is generally an A, while several points lower than the average is generally a B-. Support for Disabilities Any student with a documented disability needing accommodations should contact me and the Director of Disability Services (ext. 6500 or through e-mail at: lauren.breeding@pepperdine.edu) within the first two weeks of the semester. All discussions will remain strictly confidential. University Policies All University policies outlined in the handbook (such as definitions of plagiarism and prohibitions against coming to class under the influence of drugs or alcohol) will be enforced in this class. 6
  7. 7. Course Topics and Assignments Overview Date Main Topics Assignments Jan 4 No. 1 - Introductory Session: What’s Strategy? * 30 pages reading * Course & Instructor Overview; Defining Strategy; In-Class Case Jan 11 No. 2 - The External Competitive Environment * 35 pages reading * 5 Forces Industry Analysis & Creative Destruction (digital music case) * Chpt. 1 Sim manual * Environmental Scanning, Competitor & Value-Chain Analyses Jan 18 No. 3 - The Internal Competitive Environment * 45 pages reading * Resources, Capabilities, Core Competencies (AT&T & Starbucks) * Chpt. 2 Sim manual * Implementation focus: Organizational structure & culture Jan 25 No. 4 - Blurring Firm Boundaries: Cooperation, Vulnerability, Opportunism * 40 pages reading * Cooperative Strategies, Assets, & Opportunism (SwissAir) * Sim manual pgs 75-99 * Acquisition Strategies (Loewen Group) * Individual Memo I assigned Feb 1 No. 5 – The External Competitive Environment – Stakeholders & CSR * 20 pages reading * Stakeholder Analysis & Manufacturing Location Decision (AT&T) * Individual Memo I due * Enron, Andersen & Corporate Social Responsibility * Implementation Focus: Quantifying Investments in Corp Social Respon Feb 8 No. 6 - Strategy in High-Velocity Industries: Intended vs. Emergent Strategy * 45 pages reading * Finishing Up Class 5: CSR & Stock Reaction to 1999 Seattle WTO * Skim rest of Sim manual * Intended Strategy, Emergent Strategy, & Resource Allocation (Intel) * Implementation focus: Change Management & Leadership Feb 15 No. 7 - International Diversification, Political Risk & Foreign Entry Modes * 15 pages reading * International Diversification Motivations & Entry Modes * Industry & Competitor * Political Risk Analysis & Credible Commitments (Russian Oil Industry) Analysis Due * Implementation Focus: Simulation Strategic Plan Discussion & Practice Feb 22 NO CLASS -- Session Break Mar 1 No. 8 – Public Policy Environment of Business * 20 pages reading * Impact of public policy on the competitive environment of firms * Legislator Motivation, Congressional committees Mar 8 No. 9 - Corporate Political Strategy * 25 pages reading * Corporate Political Contributions & Business Political Privilege * Issue Framing & Coalition Building (Chrysler & Airline post 9-11) Mar 15 No. 10 – Trade and International II * 50 pages reading * Overview of International Trade Issues; Costs & Benefits of Protectionism * Evolutionary Capitalism and Economic Development * “Closed” Markets (Keiretsu & Toys R Us Japan case) Mar 22 No. 11 - Strategy Implementation: Simulation I * Need Simulation Decisions * Decisions for Y3, Q1 through Y3, Q4 Mar 29 No. 12 - Strategy Implementation: Simulation II * Team Simulation Plan due by 9 * Come to class with decision for Y4, Q1 am Weds. via e-mail * In-class decisions for Y4, Q2 to Y5, Q2 April 5 No. 13 - Strategy Implementation: Simulation III * Need Simulation Decisions * Come to class with decision for Y5, Q3 * Take-home final distributed * In-class decisions for Y5, Q4 to Y7, Q1 April 12 No. 14 - Strategy Implementation: Simulation Debrief * Sim Debrief presentations due Implementation, implementation, implementation. What went wrong? What went right? April 13 Final due 11:59 pm via e-mail * Final due 11:59 pm April 14 Graduation! 7
  8. 8. Class 1, Course Introduction Class Overview (Approximate) Time Topic/Activity 8 - 9:30 Introductions, Course Administrivia, and Instructor & Student Backgrounds Break 9:45 - 11 Defining Strategy * Operational Effectiveness vs. Sustainable Competitive Advantage * Generic Business-Level Strategies 11 - noon In-Class Case (case to be distributed in class) * In self-selected teams of 4-5 people (provisional course teams) Class Readings: Reading Availability Michael Porter, “What Is Strategy?” Harvard Clickable Link (in Blackboard) to Business Business Review, vol.74, 1996: 61. Source Premier, a Pepperdine database. Schnietz, Note on Generic Business-Level Strategies Blackboard class e-room (blackboard.pepperdine.com) “Wal-Mart’s $288 Billion Meeting,” Fortune, Blackboard class e-room 4-18-05: 93. “How Target Does It,” Fortune, Oct. 18, 2004: 100. Blackboard class e-room Questions: 1. According to Porter, what is operational effectiveness (1st reading)? Why aren’t constant improvements in operational effectiveness always sufficient to achieve superior profitability? What’s the definition of strategy? 2. What 3-4 primary strategic activities (“strategic positions” in the vocabulary of Porter) does your firm pursue? Do these main activities give it a sustainable competitive advantage? What is a sustainable competitive advantage? 3. What is your firm’s strategic vision and/or mission (often located on company web site, if you’ve never been exposed to it previously)? Does your firm’s stated mission “match” your experience inside the company? 4. Consider the retail industry. Name at least one retailer (of any kind, in any country) that fits into each of the 4 boxes of generic, business-level strategies (Schnietz Note). For example, where do Home Depot, Wal-Mart, Whole Foods, and Nordstrom fit in the 2x2 matrix? What explains why Wal-Mart is successful (profitable) but K-Mart is not (recently emerged from bankruptcy)? Further Readings (Recommended not required): • On Porter’s impact, particularly given the recent popularity of the resource-based view of strategy: “Retrospective on Michael Porter,” in the Academy of Management Executive, 16 (2002): pages 41 – 63. • For anyone desiring a strategy textbook, I think the best one on the market is Strategic Management: Competitiveness and Globalization, Michael Hitt, R. Duane Ireland and Robert Hoskisson, Thomson Learning. • Sam Walton, Sam Walton: Made in America (1992) on Wal-Mart’s basic strategic activities and positioning. 8
  9. 9. Class 2, The External Environment -- Industry & Competitor Analysis Class Overview (Approximate) Time Topic/Activity 8 - 10 Porter’s 5 Forces & Value Chain Models * Applications to some current Industry Shifts and Issues Break 10:15 – Team Break-Out 11:15 * Group Discussion of Question 3 Below * 5-Forces Application: The MBA Education “Industry” (case handed out in class) 11:15 - Class Discussion of the MBA Industry noon * Applying Resources Analysis to the Graziadio School * Bridge to Next Week: Porter’s (5-Forces) vs. Internal (Core Competency) Analysis Class Readings: Reading Availability Michael Porter, The Structural Analysis of Industries (chapter 1 of Porter’s www.study.net or Competitive Strategy, Free Press, 1980). HBS Publishing Reprint 9-376-054. HBS Publishing “Facing the Music,” Fortune, 3-31-03: 90. Blackboard class e-room “Bertelsmann’s Latest Tune,” Wall St J, 9-27-04:B1. Blackboard class e-room “How Big Can Apple Get?” Fortune, 2-21-05: 68. Blackboard class e-room “Hit by iPod and Satellite, Radio Tries New Tune,” Wall St J, 3-18-05: A1. Blackboard class e-room “Pay as you go MD: Doctor is In, But Insurance is Out,” Wall St J, 11-6-03:A1. Blackboard class e-room “In Clash of Sneaker Titans, Nike Gets Leg Up,” Wall St J, 5-13-03: A1. Blackboard class e-room Schnietz, Value Chains and Competitive Scanning. Blackboard class e-room Schnietz, Schumpeter’s Creative Destruction. Blackboard class e-room Simulation Manual, Third Printing of 5th edition (please begin to familiarize Chapter 1 yourself with game rules). Questions: 1. What is the essence of each of Porter’s 5 Forces? Which of the 5 Forces is most strongly at work in the industry conditions described in each of the above business press readings? For example, in the record industry (1st 3 business press articles), who are the main customers? Suppliers? New entrants? Substitute products? What is the level of rivalry in the industry? What’s the evidence for your assessment? 2. Where do each of the firms in the business-press articles under section I create the most value (Note on Value Chains)? How good are those firms at scanning their competitors’ value-creating activities? 3. Which of the 5 forces is the source of your industry’s greatest threat? Which force figures most prominently in your job responsibilities? Where does your firm create value? How good is your firm at understanding its competitors’ value chain and competitive strengths and weaknesses? 4. Of what value is the concept of creative destruction to managers (Note on Schumpeter)? Further Readings (Recommended not required): • Jeffrey Pfeffer & Robert Sutton, The Knowing-Doing Gap (Harvard Business School Press, 2000). • Jeanne Liedtka, “Collaborating Across Lines of Business for Competitive Advantage,” Academy of Management Executive, 10 (1996): 5 – 10. 9
  10. 10. Class 3, The Internal Competitive Environment – Resources, Assets, Core Competency Class Overview (Approximate) Time Topic/Activity 8 - 9:30 Combining External & Internal Analyses -- ATT Consumer Products Division * Industry Analysis of Phone/Answering Machine market in mid to late-1980s * Core Competency Analysis of AT&T Consumer Products Division & Critique of its Strategy Break 9:50 – noon Delving into the Resource-Based-Model of Strategy: * Starbucks Case * Illustrating Importance of Resources to strategy with in-class exercise (bring a sweet tooth!) Class Readings : Reading Availability Schnietz, Note on Resources, Capabilities and Core Competencies Blackboard class e-room AT&T Consumer Products, HBS Case 9-392-108. Pages 1-7 only; rest * www.study.net of case will be focus of class no. 5. * HBS Publishing Starbucks, Ivey School of Business Case 98M006. Entire Case * www.study.net * HBS Publishing Simulation Manual * Chpt. 2 Questions: 1. Prepare an industry analysis for the AT&T using Porter’s 5 Forces model -- how powerful is each force in the telecommunications equipment (not service) industry immediately following deregulation in the early 1980s? What generic, business-level strategy does AT&T Consumer Products appear to be following in the mid-to-late 1980s? Are there any drawbacks to this strategy? 2. The Resource-Based View says strategy must fit external environmental threats and opportunities to a firm’s internal resources and capabilities. It also claims that the most likely form of sustainable competitive advantage will come from capabilities that cut across a firm’s divisions and operations. What are AT&T’s main resources and capabilities in the late 1980s, when the Consumer Products Division is sending manufacturing abroad? Is there a mismatch between AT&T Consumer Products’ Division’s strategy and its internal resources? If so, what should they do differently? 3. Which generic, business-level strategy has Starbucks chosen? What’s the evidence? What does Starbuck’s sell? What are its strongest assets/resources? Why invest in so many parts of the value chain – is this overkill? What is driving growth at Starbucks? How is Starbucks doing financially (please be specific – chose a financial ratio relating to its revenues or expenses, its profitability, its ability to manage debt, or its ability to manage its assets and analyze Starbuck’s recent performance numerically)? Does Starbucks have a sustainable competitive advantage? Further Readings (Recommended not required): * Collis & Montgomery, “Competing on Resources: Strategy in the 1990s,” Harvard Business Review 4, (1995): 118. * Briger Wernerfelt, “A Resource-Based View of the Firm,” Strategic Management Journal (Sept-Oct 1984). Some great examples of firms who develop strong, resource-based strategies: * “New Banking Model,” Fortune, 3-31-03: 102; “Banks Elbow for Consumers, WaMu Thrives,” WSJ, 11-11-03: A1. * “How Genentech Got It,” Fortune, 6-9-03: 81. * “A Big Drug Maker Moves to Play Down Mass Market Pills,” WSJ, 9-20-04: A1. * Peter Drucker, The Effective Executive (1966). 10
  11. 11. Class 4, Strategy Formulation: Cooperation, Vulnerability, Opportunism & Strategic Lock-Out Class Overview (Approximate) Time Topic/Activity 8 - 9:50 Cooperative Strategies, Assets, Vulnerability and Opportunism * Overview of Benefits and Drawbacks of Joint Ventures * SwissAir Case –Industry Analysis & Resource Analysis * Transaction Cost Economics Overview: Opportunism & Strategic Lock-out * What’s Luck Got to Do with It? In-class exercise Break 10:10 – Acquisition Strategies noon * Loewen Group Case * Video: 60 Minutes segment on SCI (Service Corp. International) Class Readings : Reading Availability Swissair’s Alliances A, Harvard Business School Case No. 9-794-152. * www.study.net * HBS Publishing Schnietz, Note on Transaction Cost Economics Blackboard class e-room The Loewen Group, Ivey School of Business Case No. 98M008. * www.study.net * HBS Publishing Simulation Manual Pages 75-99 Questions: 1. SwissAir Industry Analysis: What are the main trends in the international airline industry in the late 1980s, at the time of the SwissAir case? What do customers value? Place the airlines mentioned in the case in the 2x2 generic business strategy matrix. Who are the best-positioned players? How sustainable are their positions? 2. SwissAir Internal Analysis: How has Swissair differentiated itself from other airlines, and what strategic activities have supported its strategy? What was the logic of Swissair’s alliance choices in 1989? How are joint ventures and the resource-based view of strategy related? By 1992, had any of the underlying reasons for Swissair’s alliance partners changed? In 1992, how is SwissAir making money? How does this case illustrate some of the benefits and drawbacks of cooperative arrangements? 3. How do opportunism and asset specificity shed light on some of the vulnerabilities of joint ventures (Schnietz Note on Transaction Cost Economics)? In what way is SwissAir made vulnerable by its JV with Delta? 4. Prepare a 5-Forces Analysis of the death care industry at the time of the Loewen case. What’s valued by the customer? What are the key success factors in the industry? How do Loewen and SCI compare on the key success factors? Which firm has a sustainable competitive advantage? What’s the evidence? Further Readings (Recommended not required): * Gary Hamel, et al, “Collaborate with Your Competitors—and Win,” Harvard Business Review, 1(1989 ): 133-139. * Oliver Williamson, The Economic Institutions of Capitalism (The Free Press, 1985). This is the transaction cost economist. * Adam Brandenburger and Barry Nalebuff, Co-opetition (Doubleday, 1996). * Robert David and Shin-Kap Han, “Systematic Assessment of the Empirical Support for Transaction Cost Economics,” Strategic Management Journal 25 (2004): 39. 11
  12. 12. Class 5, The External Environment: Stakeholders & Corporate Social Responsibility Class Overview (Approximate) Time Topic/Activity 8-9 Sources of SCI’s Competitive Advantage & Corporate Social Responsibility 9:15 - 10:45 AT&T Consumer Products Division * Maquiladora siting decision – risks and benefits Break * Team break-out for Stakeholder Analysis & specific investments in CSR * Class discussion 10:45 - noon Frontline video Bigger than Enron (approximately 45 minutes) and Discussion Class Readings : Reading Availability Schnietz, Note on Stakeholder Management and Analysis Blackboard class e-room “How a Global Web of Activists Gives Coke Problems in India,” Blackboard class e-room Wall St J, 6-7-05: A1. “Bruised in Bentonville,” Fortune, 4-18-05: 84. Blackboard class e-room AT&T Consumer Products, HBS Case 9-392-108. Pages 9-end Case previously assigned for class 3 only; first part of case was focus of class no. 3. Questions: 1. Apply the Note on Stakeholders to Coke’s problem with Global Resistance. How could such a tiny, under-funded organization cause a behemoth like Coke such troubles in India? How has Coke contributed to its problems with the organization? What kind of strategy should it adopt moving forward? 2. What is the impact of secondary stakeholders on Wal-Mart (Bruised in Bentonville)? Are they really going to be able to undermine the financial performance of the Fortune No. 1 firm (in 2005)? 3. Place each stakeholder group of AT&T consumer products division (in the mid-late 1980s) into a 2x2 matrix based on their potential to threaten or cooperate with AT&T. Based on this stakeholder analysis, should AT&T move its production facility to a Mexican maquiladora or should it expand further in Asia? 4. If AT&T does use the maquiladora, how much money does it have to potentially invest in improved working conditions for its employees? What would you recommend it provide its employees, above the legal requirements, to avoid unwanted publicity or labor problems? Further Readings (Recommended not required): • Marc Epstein & Priscilla Wisner, “Using a Balanced Scorecard to Implement Sustainability,” Environmental Quality Management (2001): 1 – 10. • Joseph Badaracco, Leading Quietly: An Unorthodox Guide to Doing the Right Thing (2002). • Tom Donaldson and Thomas Dunfee, Ties that Bind: A Social Contract Approach to Business Ethics (HBS Press, 1999). • David Hawkins “The Development of Modern Financial Reporting Practices Among American Manufacturing Corporations,” Business History Review, 37 (1963): 145. • Ian Mitroff and Elizabeth Denton, A Spiritual Audit of Corporate America: A Hard Look at Spirituality, Religion and Values in the Workplace (San Francisco: Jossey-Bass Publishers, 1999). • John Byrne, Chainsaw: The Notorious Career of Al Dunlap in the Era of Profit-at-any-Price (1999). 12
  13. 13. • Patricia Werhane, Moral Imagination and Management Decision-making (Oxford University Press, 1999). 13
  14. 14. Class 6, Strategy in High-Velocity Environments: Intended vs. Emergent Strategy Class Overview (Approximate) Time Topic/Activity 8 - 8:45 1999 Seattle WTO Research 8:45 - 9:45 Capturing the Returns to Technological Innovation * Standard Setting & Complementary Assets * Challenge to America (1994) video - difficulty in capturing R&D returns, 15 minutes Break 10 - noon Intel’s Decision to Exit DRAM Business * Creative Destruction, Emergent Strategy & Leadership Class Readings : Reading Availability David Teece, “Profiting from Technological Innovation,” Research Policy, 15 www.study.net (1986): 285-92; and 298-300. Schnietz, Note on Innovation & Imitation in VCR Industry Blackboard class e-room Schnietz, Note on Intended vs. Emergent Strategy - Intel’s Exit from the Blackboard class e-room DRAM Market. Questions: 1. What is an “appropriability regime” -- other than a big buzzword (Teece)? Why didn’t Ampex’s patents on early VTR technology ensure that it reaped all future returns on its innovation? Why are complementary assets often critical to profiting from innovation in products and technologies where patent protection is weak? What critical complementary asset did EMI lack? 2. What are examples of some products or technologies in the “pre-paradigmatic” stage? Why did the VHS standard become the dominant design in tape? 3. What is the relevance of “specialized” versus “generic” complementary assets for strategy? How do they relate to last time’s discussion of cooperative arrangements? 4. When it was first founded, what were Intel’s main resources and capabilities? How tightly linked was its intended strategy to its competitive advantage? Does this change over the course of the case? 5. What should Intel do with respect to its DRAM business in 1984? Should Intel invest in a new 1M DRAM plant, license the 1M technology to another firm to produce to remain a niche player in DRAMs or exit DRAM production entirely? What are the other pros and cons of each alternative? Why is it so difficult for Intel to see itself as something other than a memory chip maker? 6. Was Intel “lucky” at all during the course of this case? How so? What was the role of leadership and corporate culture in implementing Intel’s strategy during its first 15 years? Further Readings (Recommended not required): • Alfred Chandler, Inventing the Electronic Century: Epic Story of the Consumer Electronics and Computer Industries (2001). • David Kearns and David Nadler, Prophets in the Dark: How Xerox Reinvented itself and Beat Back the Japanese (1992). • Michael Lewis, The New, New Thing: A Silicon Valley Story (Norton, 2000). • Harold Evans, They Made America: Two Centuries of Innovation from the Steam Engine to the Search Engine (1994), profiles 53 top US innovators. 14
  15. 15. Class 7, Globalization, International Diversification & Political Risk and Sim Practice Class Overview (Approximate) Time Topic/Activity 8 - 8:30 Overview of the Appeal of Emerging Economies and the Problem of Political Risk 8:30 – 9:30 Russian Oil Industry Case Break 9:45 – noon Simulation Preparation • Simulation Strategic Plan Overview • Practice Sim Runs (in class with school-issued laptop computers) Class Readings : Reading Availability Schnietz, Note on Political Risk and Foreign Market Entry Blackboard class e-room “Russia Slaps Big Tax on BP Venture,” Wall St J, 4-12-05: A3. Blackboard class e-room White Nights and Polar Lights: Investing in the Russian Oil Industry, www.study.net Harvard Business School Case No. 9-795-022. www.hbsp.harvard.edu Questions: 1. What’s political risk and why is it important to firms considering investments abroad, particularly in emerging markets (Note)? How do various modes of foreign market entry mitigate political risk (Note)? What kind of political risk is being illustrated in the WSJ article? 2. Evaluate the entry strategies of the three US firms with respect to managing the risks of investing in the Russian Oil industry (case). What “smart” moves did each firm make to cope with this risky investment? Has any firm(s) made mistakes – if so, what are they? How consistent are their entry decisions with their broader firm strategy? Which firm’s entry strategy was the best, in your opinion and why? Further Readings (Recommended not required): • “Russian Taxman Irks Investors,” WSJ, 11-10-04: A15. • “India Slips Far Behind China, Once its Close Economic Rival,” WSJ, 11-19-02: A1. • “In Brazil, Thicket of Red Tape Spoils Recipe for Growth,” WSJ, 5-24-05: A1. • Hernando de Soto, Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (Basic Books, 2002). • Amartya Sen, Development as Freedom (1999) on why democracies and economic development are linked. • Daniel Yergin, The Prize: The Epic Quest for Oil, Money and Power (1991) on why the Mid-East works as it does. • Robert Kuttner, Everything for Sale: the Virtues and Limits of Markets (1996) on why markets work and don’t. • Kimberly Ann Elliot, Corruption and the Global Economy (Institute for International Economics, 1997). • Jim Mann, Beijing Jeep: The Short, Unhappy Romance of American Business in China (1989) story of AMC’s 1979 joint venture in China. • Witold Henisz. "The Institutional Environment for Multinational Investment," Journal of Law Economics and Organization, 16 (2000). 15
  16. 16. Class 8, Public Policy Environment of Business Class Overview (Approximate) Time Topic/Activity 8 - 8:30 Policy Matters * Why Public Policies Matters to the Private Competitive Environment of Business 8:30 - 9:45 Reelection Imperative and Legislator Activities * Legislator Motivation and Activities; Median Voter Theorem * Frontline Video, “The Choice” on 1996 Clinton-Dole Presidential Election, 10 minutes Break 10 - 11:30 The Committee Structure of Congress 11:30 - noon Constituencies of Legislators vs. Presidents Class Readings: Reading Availability “Hog Wild for Pollution Trading,” Fortune, 9-2-02:137. Blackboard class e-room “Cautiously, Starbucks puts Lobbying on Menu, Wall St J, 4-12-05: A1. Blackboard class e-room Schnietz, Note on Public Policy in Aircraft: Boeing v. Airbus Blackboard class e-room “The President’s Past,” New York Times Magazine, July 31, 1994:20. Blackboard class e-room “Rep. Engel Triumphs by Being Dull in DC,” Wall St J, 6-11-96: A1. Blackboard class e-room R.K Weaver, “Politics Blame Avoidance,” Journal Public Policy (1986): 37-39. Blackboard class e-room Schnietz, Note on the Median Voter. Blackboard class e-room Schnietz, Note on Congressional Procedures and Organization Blackboard class e-room Garret Hardin, “Tragedy of the Commons,” Science (1968): 1243 Blackboard class e-room Questions: 1. How does the public policy environment affect the private competitive environment of firms in the “Hog Wild” “Starbucks” and Boeing-Airbus articles? Which of the 5 forces is impacted the most by the public policy described? 2. Political scientists claim legislators are motivated by many things: a desire to serve the public, personal ambition, self-interest, a need for attention, and reelection. What does the NY Times article about Bill Clinton suggest? So what? Why do managers need to know what motivates legislators? 3. What kind of activities do legislators need to engage in to be reelected? What does the article on Rep. Engel suggest? Why might blame-avoidance be more important for legislators seeking reelection than credit- claiming (Weaver)? 4. Who is the median voter (to whom candidates cater) in a general election, like the 2004 Presidential election (Median Voter Note)? Who is the median voter on an issue like R&D tax allowances? Are managers more or less likely to be the median voter on policy issues than a member of the general public? 5. How does the committee system further the reelection imperative of legislators (Note on Congressional Organization)? What are some of the business implications of the committee system and congressional norms? 6. How are legislators like the herdsman in the Tragedy of the Commons reading? How are Presidents different from Congress? Recommended (not required) additional readings: * House of Representatives www.house.gov; Senate www.senate.gov; portal to all branches www.thomas.loc.gov * CQ Weekly and National Journal (Pepperdine searchable databases) provide weekly coverage of legislative activities. * Walter J. Oleszek, Congressional Procedures and the Policy Process, (CQ Press, 2003), and Roger Davidson & Walter J. Oleszek, Congress and Its Members, (CQ Press, 2004). * “Lord of the Air: What’s Left for Airbus After Overtaking Boeing in Commerical Aircraft Market?” Fortune, 11-10-03: 144. * David Mayhew, Congress: The Electoral Connection (1974). 16
  17. 17. Class 9, Corporate Political Strategies Class Overview (Approximate) Time Topic/Activity 8 – 8:30 Overviewing Corporate Political Strategy 8:30 – 9:15 Corporate Political Donations * Databases and discussion – (please bring laptops if you have wifi cards to access Internet) * Frontline Video “So you want to buy a President?” on ‘96 Pres Election, 20 minutes Break 9:30 - 10:15 Business Political Privilege, Issue Visibility & Reframing, Interest Withholding 10:15 - 11 Chrysler Bailout 11- noon In-class team exercise on Issue Reframing Class Readings: Reading Availability Schnietz, Note on Campaign Finance Blackboard class e-room Clawson, Money Talks (1992): 88-93 www.study.net Schnietz, Note on Interest Withholding Tax Legislation Blackboard class e-room Schnietz, Note on the Bailout of Chrysler Corporation Blackboard class e-room “Bailout for Airlines Showed Weight of Mighty Lobby,” NY Times, 10-10-01: Blackboard class e-room A1. “Hard-Edged Insurance Chief Taking on New and Public Face,” NY Times, Blackboard class e-room 10-31-01: C1. Questions: 1. What are the distinctions between hard and soft money (Schnietz Note)? What has soft money been replaced with? 2. Corporate political contributions are often criticized for “buying” legislators’ votes on bills (Clawson). What do you think – does money matter and, if so, under any particular circumstances? 3. Many people argue that business is “politically privileged,” or naturally advantaged, in comparison with many other interest groups when seeking to influence public policies. In what ways is this true? How does the Interest Withholding Case support and undermine the business political privilege argument? 4. Was the interest withholding legislation an example of a low or a high visibility issue? What “public interest” rationales (issue reframing) did the ABA offer in seeking to repeal the law? If high-visibility political strategies are generally more risky and costly (and they are), then why did the ABA pursue one? 5. What were the causes of Chrysler’s financial difficulties in 1979? What were the main arguments against public assistance to remedy Chrysler’s financial trouble? What public interest rationales did Chrysler develop to counter opposition and develop support for the loan guarantees? What grade would you give Chrysler’s political strategy to get the loan guarantees passed? 6. What explains why the airline industry received public subsidies after 9-11 but not the insurance industry? After all, both industries are highly politically active and faced enormous financial losses and liabilities in the aftermath of the terrorist attacks on the World Trade Centers and the Pentagon. The NYT article suggests the airline industry prevailed because it had a “mighty lobby.” Is it that simple? Recommended (not required) additional readings: * Bill Vlasic & Bradley Stertz, Taken for a Ride: How Daimler-Benz Drove Off with Chrysler (2000). 17
  18. 18. Class 10, International & Trade II Class Overview (Approximate) Time Topic/Activity 8:00 - 8:45 Overview of International Trade Issues 8:45 - 9:30 Costs & Benefits of Free Trade vs. Protectionism Break 9:50 - 10:30 Anglo-American vs. German-Japanese Styles of Capitalism • Evolutionary Capitalism 10:30 - noon Penetrating “Closed” Markets * Japanese non-tariff protection and the keiretsu structure * Challenge to America video (1994) on Japanese Keiretsu structure & “patient” capital * Toys “R” Us Japan Class Readings: Reading Availability Russell Roberts, The Choice: A Fable of Free Trade and Protectionism (Prentice www.study.net Hall, 1994): 4-14; 26-33. Schnietz, Note on Ricardo’s Comparative Advantage. Blackboard class e-room “With Little Evidence, Florida Growers Blame Tomato Woes on NAFTA,” Wall Blackboard class e-room St J, 4-3-96: A1. James Fallows, “How the World Works,” The Atlantic Monthly (1993): 61-87. Blackboard class e-room. www.study.net K. Miyashita & D. Russell, Keiretsu: Inside the Hidden Japanese Conglomerate www.study.net (1994): 43-53. Case: Toys “R” Us Japan, HBS Case No. 5-798-007. * www.study.net * HBS Publishing Questions: 1. What is Ricardo’s theory of Comparative Advantage (Note and Roberts reading)? What’s the difference between absolute and comparative advantage? If free trade is as beneficial as Ricardo suggests, then why is there so much resistance to it (Florida tomato article)? 2. Is there any difference between the German-Japanese and the Anglo-American models of economic development that you were not previously aware of (Fallows)? Are there any costs to being a “German- Japanese” model? 3. Which of the functions of a keiretsu’s main bank do you find most distinctive or unusual? What advantages do firms appear to gain from cross-shareholdings? How do keiretsu act as barriers to foreign entry in the Japanese model? Can you think of any disadvantages to keiretsu practices? 4. What are the main success drivers of Toys’ strategy in the US? What are the main obstacles to Toys’ entry in Japan? Should Toys proceed with the planned expansion? How? Further Readings (Recommended not required): * Nieman & Schnietz, “Politics Matter: The 1997 Derailment of Fast-Track”. Business and Politics 1 (1999): 233. * Joanne Oxley and Karen Schnietz, “Globalization Derailed? Multinational Investors’ Response to the 1997 Demise of Fast-Track Trade Authority,” Journal of International Business Studies 32 (2002): 479. * Wolfgang Stolper and Paul Samuelson, “Protection and Real Wages,” Review of Economic Studies, 9 (1941): 58. • Jack Beatty, Colossus: How the Corporation Changed America (Random House, 2001). • Alfred Chandler, The Visible Hand: The Managerial Revolution in American Business (Belknap, 1977). • Alexander Gerschenkron, Economic Backwardness in Historical Perspective (Harvard University Press, 1940). • William Lazonick, Business Organization and the Myth of the Market Economy (1991). • Douglass North, Institutions, Institutional Change and Economic Performance (Cambridge University Press, 1990). 18
  19. 19. Class 11, Strategy Implementation: Simulation I Class Overview (Approximate) Time Topic/Activity 8 – 8:20 Getting Computers and Rooms set-up (each team will have their own room) • 1st decision for Y3, Q1 due at 8:20 in whatever room Karen is in (to be announced); results will be returned within approximately 10 minutes. 9:40 Decisions (entry) for Y3, Q2 due; results will be returned within approximately 10 minutes. 10:50 Decisions for Y3, Q3 due; results will be returned within 5-10 minutes. Use these results to finalize your Simulation Strategic Plan, due on Friday, Nov. 11th at 9 am. In other words, the forecasts in the Sim Plan should be for the next 4 quarters, or Y3, Q4 through Y4, Q3. 11:45 Decisions for Y3, Q4 due; results will be returned within 5-10 minutes. Use these results to finalize your Simulation Strategic Plan, due on Wednesday, March 21st at 9 am. In other words, the forecasts in the Sim Plan should be for the next 4 quarters, or Y4, Q1 through Y4, Q4. Class 12, Strategy Implementation: Simulation II Class Overview (Approximate) Time Topic/Activity 8 – 8:15 Getting Computers and Rooms set-up (each team will have their own room) • 8:15 decision for Y4, Q1 due to Karen 9:20 Y4, Q2 decision due 10:15 Y4, Q3 decision due 11:05 Y4, Q4 decision due 11:55 Y5, Q1 decision due Class 13, Strategy Implementation: Simulation III Class Overview (Approximate) Time Topic/Activity 8 – 8:15 Getting Computers and Rooms set-up (each team will have their own room) • 8:15 decision for Y5, Q2 due to Karen 9:20 Y5, Q3 decision due 10:15 Y5, Q4 decision due 11 Y6, Q1 decision due 11:50 Y6, Q2 decision due 19
  20. 20. Class 14, Simulation Debrief Presentations and Discussion Class Overview (Approximate) Time Topic/Activity 6 – 10 • Teams will present for 10-15 minutes in random order (will be determined that evening) • Debrief questions will be handed out with last results of Simulation • Nothing fancy is required – spend time analyzing, not prepping Powerpoint presentation • First 1-2 teams to present will take the longest, as issues/topics/interventions are discussed for the first time 20
  21. 21. Business Strategy, Karen Schnietz Peer Evaluations of Individual Team Member Performance Team members will evaluate each other's contribution (including their own) to the team projects (Industry & Competitor Analysis and Simulation) at the end of each project. Each team member's individual share of the points earned by the team on the assignment is computed by multiplying the team score by the peer rating for individual performance. Individual performance is determined by each team member rating all members of the team individually, for the contribution that each made to team performance. In short, the individual members of a team may not share equally in the point total earned by that team; members who are evaluated (by each other) as having contributed more or less to the team effort will get proportionately more or less points. The form you’ll use is below. In rating the members of his/her team, the team member apportions a point total equal to 100 points per team member of the team. The points awarded to each team member are totaled and divided by 100 times the number of team members. Example: A student in a 4-member group receives point scores from 4 team members of 95, 110, 105, and 100. His/her score is 410/400 = 1.03. Assuming that the team earned 15 points out of 20 points available for that assignment, that student's points would be 15.45. Another example: a student receives scores of 90, 95, 85, 98, and 92. His/her score is 460/500 = .92, which, using the same 15 points, would be 13.8 points. In apportioning points, you are recognizing possibly differing levels of contribution of individual team members to the group project. There is no required minimum assignment of points to a team member (zero points may be awarded in very extreme cases); however, you may not award more than 110 points to any single team member. If all members of a team gave equal effort to the project(s), then you would give everyone in your group 100 points. Equal division of points is the situation I most frequently encounter and it is certainly the ideal situation -- all of us would prefer to work on teams where output and effort is consistent across all members of the group. I conduct the peer evaluation on group assignments to aid in deterring, or minimizing, free-riding by some team members on the greater work effort of colleagues, or to allow teams to reward particularly productive members. 21
  22. 22. Business Strategy, Karen Schnietz Peer Evaluation of Industry & Competitor Analysis Assignment For each member of your team including yourself, please assign a score of 0 – 110 points to reflect that individual member’s contributions to the Industry & Competitor Analysis. If everyone contributed equally to the work of the group, then you would award every member 100 points. If one member did nothing – never showed up to team meetings, never turned in promised assignments, etc, you would probably want to award that member a very low number of points. It is not possible to give someone more than 110 points. Please provide very specific reasons for your points if you are not assigning all members of your team virtually the same score. Please also recall the main goals of this peer evaluation – to deter free-riding before it begins, to impose costs on individuals who significantly free-ride on other team member’s work, or to reward individuals who make particularly large contributions to the team. I am not interested in trivial differences in individual performance. In the vast majority of cases, my teams all rank themselves as 100. Your Name___________________________________________ Team No. ____ Please give specific reasons (for yourself also) if you assign a score other than 100 to a team member: 1. (Yourself, Points)__________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ 2. (Name, Points)____________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ 3. (Name, Points)____________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ 4. (Name, Points)____________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ 5. (Name, Points)____________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ 6. (Name, Points)____________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ (Please use back of page, if needed) Confidentiality: All evaluations will be seen only by me and will be held in strictest confidence. 22

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